1. Yangtse Delta Region Continues
to Play the Role of Economic Locomotive

2002 proved to be a considerably better year for China' s economy
than was expected by the Chinese leadership. The influence of
the global economy on Chinese developments was not as negative
as foreseen. The Yangtse delta region - including in this term
the city of Shanghai and the two provinces of Jiangsu and Zhejiang
- continues to play a locomotive role in the country' s economy,
in particular in the field of daily consumption. Shanghai is rapidly
moving into a trend-setting role for the Chinese consumer.

The GDP of China rose 8.0% (7.3% in 2001) to 10' 239.79
billion RMB in 2002, an equivalent of
1' 237.1 billion USD (according to Chinese official exchange rate:
100 USD = 827.7 RMB). The aggregated GDP of the delta region
climbed around 11% to 2' 728.41 billion RMB (329.6 billion USD)
in 2002, accounting for 26.6% (22% in 2001) of China' s total
GDP, a remarkable result compared to its rather low percentages
of population (10.9%) and area (2.2%).

Due to robust performances by industrial firms, buoyant consumer
spending and infrastructure construction, Shanghai reported
a GDP of 540.88 billion RMB (65.35 billion USD) in 2002, an increase
of 10.9% over the previous year. This was the eleventh consecutive
year of double digit growth and the highest growth rate since
1998. Income per head thus passed the 4'500 USD threshold.

Jiangsu Province, as the second largest provincial economy
in China (after Guangdong province), recorded 1' 063.63 billion
RMB (128.5 billion USD) in GDP last year, up 11.6% over 2001 and
3.6 percentage points higher than the national average.

The GDP of Zhejiang province reached 767 billion RMB (92.67
billion USD) in 2002, up 12.3% over the previous year and 4.3
percentage points above the national average. Zhejiang is the
richest province in China when measured by per capita GDP(14'
700 RMB, or 1' 776 USD in 2001).

2. Private Consumption: One of the Major Engines
for Growth

In 2002, retail sales growth in China, reflecting the
expansion of personal consumption, slowed down to 8.8% from 10.1%
in 2001. Retail sales of consumer goods in the delta region, however,
grew faster in the same period: in Shanghai retail sales
reached 203.52 billion RMB (24.59 billion USD), up 9.3% (up 8.1%
in 2001) from the previous year; in Jiangsu it recorded
321.58 billion RMB (38.85 billion USD), up 12.1% (up 10.2% in
2001) and in Zhejiang it totalled 287.8 billion RMB (34.77
billion USD), up 12.6% (up 11.2% in 2001).

Due to a rapid growth of sales both in the domestic market and
abroad, the employment situation in Shanghai, Jiangsu and Zhejiang
was much better than in many other provinces. Income growth and

consumer confidence in this region remained quite high. Key consumer
articles like personal computers, mobile phones, and even cars
and houses, sold very well.

Growth of private consumption in the region was fuelled by an
improved financial system, too. In Shanghai, for example, outstanding
loans for cars rose to 4.1 billion RMB at the end of December
2002, up 900 million RMB from a year earlier, while the outstanding
housing loans totalled 109.078 billion RMB, up 15.7 billion RMB.

3. Investment in Fixed Assets: Another Growth
Engine

Since 1998 (after the Asian financial crisis), the Chinese national
economy was driven by heavily increased investment in fixed assets,
especially in the field of infrastructure. This situation continued
in 2002. Statistics show that completed investments in fixed assets
grew at a rapid rate of 16.1%, increasing to 4' 320.2 billion
RMB for the whole of China. Fixed-asset investments in
infrastructure construction rose 16.4% to 1' 725 billion RMB and
the investments in real estate rose 21.9% to 773.6 billion RMB.

In the delta region, investments in fixed assets accelerated
in the year 2002 as well: they reached 215.84 billion RMB ( 26.08
billion USD) in Shanghai, a rise of 8.2% (up 6.1% in 2001),
totalling 384.92 billion RMB (46.5 billion USD) in Jiangsu,
a rise of 16.5% (up 10.3% in 2001) and recording 345.8 billion
RMB (41.78 billion USD) in Zhejiang, an increase of 24.9%
over the previous year (up 22.1% in 2001).

4. Foreign Investment: Increasing Continuously

Foreign direct investment (FDI) in China totalled 52.743
billion USD, an increase of 12.5%. China therefore became the
preferred destination for foreign investments, surpassing the
United States for the first time in 2002. So far, there are more
than 420' 000 foreign invested enterprises in China, with contractual
foreign investment of 828.06 billion USD and actual foreign investment
of 447.966 billion USD. It is important to realize, however, that
roughly 60% percent of the capital under the heading of FDI is
still coming from different Chinese sources.

The Yangste delta region saw an accelerating influx of
foreign investment since 2001. The total FDI of the region reached
18.56 billion USD in 2002 in terms of actually utilised value,
accounting for 35.2% (30% in 2001) of China' s total ( 52.743
billion USD). In Shanghai, FDI was 5.03 billion USD in
2002, increased by 14.5% over the year before. In Jiangsu
it reached 10.37 billion USD, an increase of 75.4% and in Zhejiang
the amount was 3.16 billion USD, an increase of 43% over the year
2001.

5. Foreign Trade: Rapid Growth both in Export
and Import

China' s total imports and exports increased by 21.8%
to 620.8 billion USD last year. Exports rose 22.3% to 325.57 billion
USD; imports grew 21.2% to 295.22 billion USD; the trade surplus
stood at 30.35 billion USD. Low prices and reasonable quality
gave China' s products an edge in the world market. China has
considerably benefited from a weak U.S. dollar as the RMB is virtually
pegged to the US currency.

The delta region held a leading position in China' s foreign
trade. The export value of Shanghai was 32.06 billion USD
in 2002, an increase of 16% compared to the previous year. Jiangsu
exported goods in the value of 38.48 billion USD, an increase
of 33.3% and Zhejiang' s exports grew 28% to reach an amount
of 29.42 billion USD. The region's total export value increased
by 22.3% compared to the previous year, and reached 100 billion
USD, accounting for about 31% of China' s total export value.

The vast increase was seen not only in exports but also in imports
in the Yangtse delta region.
In 2002, Shanghai imported goods with a value of 40.61
billion USD, an increase of 22.1% over the previous year. Jiangsu
imported 31.82 billion USD, an increase of 41.6% and Zhejiang'
s imports grew 27.7% to reach an amount of 12.54 billion USD.
The region's total import value increased by 30%, and reached
85 billion USD, accounting for 29% of China' s total imports.
The rapid increase of China' s imports was partly due to the fall
of import tariffs as a result of China' s entry to the WTO. China'
s average tariff level fell to 12% last year from 15.3% in 2001.
The statistics prove that the region was profiting considerably
by the new WTO regulations, allowing cheaper imports due to the
lowered customs duties and profiting by better access to world
markets due to the WTO membership conditions.

The trade balance of Shanghai therefore showed
a deficit of 8.55 billion USD in 2002, reflecting the city'
s increasing demand for foreign goods in the high-tech and higher
quality brackets due to the process of the internationalisation
in the field of consumer goods and due to a strong drive in industrialisation
as far as the production base was concerned. Jiangsu had a trade
surplus of 6.66 billion USD and Zhejiang remained the most aggressive
trading province in China with a trade surplus of 16.88 billion
USD, accounting for 55.6% of China' s total trade surplus.

6. The Challenges: Still Serious

The economic situation in the delta region will remain dynamic
and stable in the near future. It is estimated by Chinese research
institutes that China' s GDP growth rate of this year will be
about 7.5%. Another double-digit increase for the delta region
provinces is thus very likely.

But the challenges are there as well. The Chinese government
is facing not only the sluggish world economy and an uncertain
global political situation, strongly reducing demand from abroad,
but also the deflationary pressures in the home market marked
by slower growth of private consumption. High unemployment rates
and a stagnant rural income growth will very likely continue to
challenge government policies.

The most serious problem, however, remains the unemployment
pressure. According to official statistics, the rate of unemployment
in urban areas across the country reached 4% by the end of 2002,
which was 0.4 percentage point higher than that by the end of
2001. But these figures do not include the "laid-off workers"
(about 4.1 million according to the Chinese official estimate)
and the floating population (about 150 million, mainly composed
of the jobless rural laborers). Actual urban unemployment is estimated
at about 7%. The central government has vowed to keep its registered
unemployment rate below 4.5% this year and create more than 8
million new jobs. This is obviously not enough for the urban job-seekers
(currently about 23 million) and is far below the necessary numbers
of jobs for migrant workers in big towns. In Shanghai alone, the
migrant population amounts to 3.7 million persons, many of them
working on a short contract basis. Without any social security
protection, standing in the most unfavorable social positions,
the migrant workers are posing mounting challenges to Chinese
government agencies, not only in economic and social terms, but
more and more also in a political context.